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How much does it cost to start up a business?

Many young entrepreneurs save money with do-it-yourself attitude

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Know Before You Jump

Four things every new business owner should know, courtesy of the Hawaii Small Business Development Center:

1. Failure isn’t exactly failure: According to the U.S. Small Business Administration, 56 percent of businesses don’t make it through the first five years. Not all of these are financial failures. For instance, some first-time owners realize running a business isn’t for them. “Failing in business is not perceived as a bad thing,” says Kurt Corbin, assistant state director for the SBDC. “Twenty years ago, you had one shot and, if you failed, that would have followed you. Now, as long as you’re successful more often than you fail, there’s a sense that it’s OK. You’re getting better at it.”

2. You can get financed: It costs money to start a business, regardless of type or size. While most traditional banks may not take a risk on someone with little or no experience, there are other ways to get money. Funding platforms like Kickstarter and online financial communities like Lending Club raise money or issue loans to entrepreneurs. “Alternative forms of funding and cloud-based funding sources are very viable options,” Corbin says.

3. Business plans matter: It may seem old school to devise a business plan, but it will help you organize your business and keep it on track. “Financial management, cash controls and accounting practices are as important to running the business as the product or service,” Corbin says. “Every business must have a solid business plan.” The plan should include a clear understanding of what you plan to offer, to whom and at what price; your target customers; and what it will take to produce your product or deliver your service.

4. Build a circle of advisors: Surround yourself with people who know more than you do about your business, Corbin says. This group may evolve into a formal board of advisors or directors or financial investors. “Engaged and knowledgeable advisors can help the new entrepreneur avoid pitfalls, point to efficiencies in practice or procedure, and create introductions to new customers, markets or suppliers.”

122,720 Businesses in Hawaii

*Each store and branch counts as a single location, so a business that has three stores would show as three establishments.

Source: U.S. Census Bureau

Hawaii’s New Entrepreneurial Class

Hawaii had the third-lowest rate of new entrepreneurial activity in the country after West Virginia and Pennsylvania. Here is the rate of adults, ages 20 to 64 per 100,000 population, who started a business for the first time in 2011 and made it their main profession:

Source: The Kauffman Index of Entrepreneurial Activity, created by the Ewing Marion Kauffman Foundation, which supports entrepreneuship in America.

Five Steps to Budgeting for a Startup

Before starting a business, creating a budget lets you objectively weigh the chances of success. JW Ellsworth, former president of Aston Hotels and now a small business counselor at Score Hawaii, offers these five steps to creating a budget.

1) Gauge the market
Before firing up your QuickBooks application to prepare a budget, you need to walk and talk your idea, judiciously, among peers and trusted friends, and identify your competition and customers. Talk to potential suppliers and distributors about costs and margins.
2) Gather information
A startup budget is a projection of revenue and expenses to be incurred over a finite period, typically one to three years. It should include startup and operating expenses plus conservative and middle-of-the-road estimates of annual revenue broken down by months.
3) Expenses summarized
Expenses can be broken down into the following:
  • First, startup expenses are all costs incurred to allow the proverbial lights to go on; 
  • Second are variable costs, which fluctuate with revenue such as staffing;
  • Third are fixed costs, which you pay regardless of how much revenue you have, such as rent and insurance.
4) Revenue predictions
Startup revenue predictions can be a shot in the dark given the lack of operating history; that’s why it’s best to do two levels of forecasts. The conservative view takes the almost-worse-case snapshot of sales, both volume and growth, while the middle-of-the-road version moderately increases both. Try to break down the revenue and its sources with as much detail as possible.
5) Interpreting and acting upon the budget information
If you have projected income within a reasonable period and the amount is more than you would get working for someone else, you have further questions to consider: Is the potential return worth the risk? Is the new business the primary source of income for you and your family? Do you have the necessary capital or will you need loans or investors? What are the competitive barriers your business will face?

Source: SCORE Hawaii
SCORE is a national nonprofit that provides free business counseling to business owners. Go to or call 547-2700 to arrange a free mentoring session.

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